Unless you have been living under a rock recently you probably heard of the fiasco with the chief justice of Nigeria. A couple of days ago Justice Walter Onnoghen was “suspended” by the presidency with a new chief justice sworn in. Cue outrage by many. In democracies the executive branch should not be able to unilaterally remove the head of another arm of government, in this instance the judiciary. I am not a lawyer and therefore will not comment on the constitutionality of the action, although the speed with which the entire job was implemented raises a lot of red flags. Still, there are consequences for these types of actions on the economy mostly around the perception of Nigeria as an investment destination.
Of course, this is not the fist big government action that inadvertently put Nigeria in bad light. The MTN fiasco was just as bad in terms of perceptions of Nigeria. If you recall, MTN was fined, or asked to refund, about eight billion dollars for what looked like a simple bureaucratic matter that happened years earlier. The matter has since been settled with MTN refunding a minimal amount, maybe even to itself. The wording of the press release was not clear. Still, the damage had been done with another addition to the list of reasons why Nigeria is a difficult investment destination.
Why does this all matter? Last week the United Nations Conference on Trade and Development (UNCTAD) announced global foreign direct investment trends for 2018. For Africa as a whole FDI increased by 18 percent to $40bn. For Nigeria though, FDI fell to a thirteen year low of $2.2bn.To put that into perspective, Nigeria accounted for just 0.1 percent of global foreign direct investment. Or to put it in other words, Nigeria is insignificant as far as international investors are concerned. In fact, Ghana, whose entire population can fit inside Lagos got 50 percent more foreign direct investment that Nigeria did.
When discussing events like the Onnoghen issue or the MTN fiasco we always tend to view things in terms of how they reduce FDI or reduce portfolio flows. The more difficult thing to conceptualize is how it further discourages those who were thinking about investing in Nigeria. Given that we are near the bottom of the investment ladder, the list of things we need to do to convince the rest of the world to take a chance on us just got longer. If we continue to shoot ourselves in the foot we probably won’t see FDI get that much smaller as it is already very low. But there are consequences, nonetheless.
Given our economic position, no one needs to be convinced on the need for FDI, especially in sectors outside the oil industry. Analysis of the National Bureau of Statistics capital importation reports suggest that the lion share of FDI goes into banking and finance with little to labour-intensive sectors which, given our unemployment issues, should be our focus. If we are to reverse the trends in unemployment and aim for more inclusive growth then we need investments in sectors that employ people. If we take into account the quality of labour in terms of human capital then we need investment in sectors that employ low-skilled workers. Domestic investment in these sectors is important but as we see from the data, the scale for foreign investment is much larger. Foreign investments also tend to come with skills and knowledge which are probably just as important as the investments themselves. There is a rich literature on the impact of foreign investments on knowledge spill overs and technology transfers. To cut the story short, we lose a lot by not attracting foreign investments and we should be doing everything in our powers to change that.
The silver lining, if there is any, is that this chief justice fiasco gives us the opportunity to demonstrate that we are country where the rule of law applies to all, regardless of position. If we are able to resolve this issue amicably then it shows the world that our judicial system is a bit more credible, and that no one is above the law. If it all gets swept under the carpet and we carry on as if nothing happened, then that’s another nail in our perception coffin.
Dr. Nonso Obikili is chief economist at Business Day.